The National Pension Scheme (NPS) is a retirement scheme. Under this scheme, the subscriber shall make regular investments in the scheme. The funds are invested in market-linked instruments. Thus, NPS offers higher returns than other pension schemes. 60% of the corpus on maturity is tax-free, while the remaining 40% is taxable and must be invested in annuities. On the other hand, Old Pension Scheme (OPS) offers a monthly pension to government employees based on the last drawn salary. The scheme aims to offer regular income for employees during their retirement. This article highlights the differences between NPS vs OPS.
NPS vs OPS – What is the Difference?
Following are the key differences between NPS vs OPS:
|Basis of Difference||NPS||OPS|
|Nature of the Scheme||The employees contribute towards NPS during their years of employment. The amount is invested in market-linked securities.||OPS offers pensions to government employees on the basis of their last drawn salary. 50% of the last drawn salary.|
|Tax Benefits||Annual investments up to INR 1,50,000 are tax-deductible under Section 80C of the Income Tax Act, 1961. Additional annual investments up to INR 50,000 are tax-deductible under Section 80CCD (1B) of the Income Tax Act, 1961.||No tax benefits are applicable.|
|Pension Amount||On retirement, NPS provides a pension fund that is 60% tax-free when redeemed, but the remainder must be invested in annuities, which are completely taxable.||Income from OPS does not attract any tax.|
|Eligibility||All Indian citizens between 18 and 65 years.||Government employees|
NPS vs OPS – Which is Better?
The Old Pension Scheme is a pension oriented scheme. It offers regular pensions to employees during retirement. The pension amount is 50% of the last drawn salary by the employee. Thus, the pension amount is constant.
On the other hand, the National Pension Scheme is an investment cum pension scheme. NPS contributions are invested in market-linked securities, i.e., equity and debt instruments. Therefore, NPS doesn’t guarantee returns. The investments are volatile and hence have the potential to generate significant returns. The asset allocation between debt and equity is dynamically adjusted with your age. As you near retirement, the equity allocation in your portfolio will reduce.
Therefore, if you wish to save for retirement and are willing to undertake certain risks with your investment, NPS is a suitable option. Furthermore, investments up to INR 1,50,000 per annum in NPS are tax-deductible under Section 80C of the Income Tax Act, 1961. Also, an additional INR 50,000 is tax-deductible under Section 80CCD. Thus, with NPS, you can plan your retirement corpus well and at the same time enjoy tax benefits.